SCENESETTER FOR THE VISIT TO NICARAGUA BY CODEL

UNCLAS MANAGUA 000163

SENSITIVE
SIPDIS

FROM THE AMBASSADOR
STATE FOR P, WHA, H

E.O. 12958: N/A
TAGS: PREL PGOV PHUM SNAR NU
SUBJECT: SCENESETTER FOR THE VISIT TO NICARAGUA BY CODEL
ENGEL -- FEBRUARY 18-20, 2008


1. (SBU) On behalf of Embassy Managua, I want to warmly
welcome you to Nicaragua. Your visit is an opportunity to
underscore our continuing commitment to the Nicaragua people
and willingness to engage with the Nicaraguan government on
areas of mutual concern, while emphasizing our growing
concerns about the state of democracy and rule of law. The
U.S. Government's top priorities in Nicaragua are to help the
Nicaraguan people preserve democratic space and to
demonstrate the good will of the United States. At the same
time, we seek to maintain intense engagement with Nicaragua
by continuing our significant economic,
democracy-strengthening, and social-assistance programs for
the Nicaraguan people, and our successful counter-narcotics
cooperation.


DEMOCRACY RETREATING
--------------


2. (SBU) During the first seventeen years of democratic
transition (1990-2007),Nicaragua made strides in the
development of democratic institutions, increases in social
welfare, the protection of civil rights, the development of a
professional army, and the establishment of an open market
economy. Our robust assistance program has facilitated these
improvements. Since the return of the Sandinista National
Liberation Front (FSLN) to power in January 2007, however,
Nicaragua has drifted sharply away from democratic governance
toward increasing authoritarianism. The most recent and
ominous manifestation of this shift was the FSLN's campaign
to win the November 2008 municipal elections at any cost.
Using the legal framework when convenient - ignoring it when
not - it outlawed two political parties, acted to debilitate
civil society organizations working in governance areas, used
the Supreme Electoral Council (CSE) to manipulate voter
registration and exclude observers, and employed its network
of Citizen Power Councils (CPCs) to carry out door-to-door
registration and affiliation surveys and to attack and
intimidate opponents.


3. (SBU) Election day on November 9, 2008 was characterized
by massive irregularities and the absence of credible
electoral observation. The CSE approved preliminary results
favoring the FSLN candidates, despite a demand for a recount
from the opposition parties and civil society. Violence
erupted when mobs of government supporters blocked marchers
attempting to protest the election fraud. On November 20,
Nicaragua's electoral authority formally announced that the
governing FSLN had won 105 out of 146 municipalities,
contradicting the results it had posted earlier on its own
website. Efforts through the National Assembly to nullify
the elections or open the results to an international audit
have not been successful to date. Independent observers,
backed by tallies provided by the opposition, indicate that
opposition candidates may have won election in at least 30 of
the municipalities awarded to the FSLN, including Managua.


4. (SBU) In January 2009, in a continuation of their "pacto"
power-sharing agreement, the FSLN and former president and
convicted felon Arnoldo Aleman struck a deal that handed
control of the National Assembly to the FSLN and its allies
in exchange for the dismissal of all convictions against
Aleman. This new corrupt alliance provides a governing
majority that allows the regime to restrict democratic space
rapidly. President Daniel Ortega is expected to seek
constitutional changes that would allow him to stay in power
beyond the current term of five years and would create a
semi-parliamentary system that would ensure that the FSLN and
Aleman's Constitutional Liberal Party split power between
themselves.


5. (SBU) In addition to the pressures on non-FSLN political
parties, the Nicaraguan government in August and September
initiated a general crackdown on international and local
non-governmental organizations (NGOs) involved in democracy
promotion or otherwise critical of the government. On August
27, the government brought charges against the International
Republican Institute and other local NGOs, alleging that
these organizations improperly sought to influence municipal
elections by hosting a seminar in which former Mexican
president Vincente Fox criticized the anti-democratic actions
of the Ortega government. On September 24, the government
opened investigations of 17 prominent civil society
organizations for supposed money laundering of aid from
international donors. As a result of these investigations,
the government raided several offices, froze accounts,
performed onerous tax audits, and canceled the registration
of some organizations. Most recently, the Nicaraguan
government and FSLN Deputies in the National Assembly have
proposed new legislation to increase government control over
civil society, including potential restrictions on activities
and a requirement that all foreign funding be channeled
through the government rather than going directly to the
NGOs. Despite the pressures on traditional civil society
groups, Nicaragua's press remains largely free and
independent.


THE PEOPLE'S PRESIDENT
--------------


6. (SBU) The overarching theme of President Ortega's
administration is poverty alleviation. Reflecting his
Marxist studies, he believes that inequalities within
Nicaraguan society have their origins with the wealthy class,
or "oligarchy." The only way to change things is for the
poor to take control of their government and pursue
socialism. On June 23, 2008, Ortega declared that
"socialism" was the only way forward. With this statement,
he joined Chavez in the search for a new socialist model,
Socialism for the 21st Century, the outlines of which are
still being drawn.


7. (SBU) With the help of First Lady and chief propagandist
Rosario Murillo, Ortega has plastered the country with
billboards of himself and inundated radio and television,
especially in the runup to the November municipal elections,
with political slogans and advertisements extolling the
virtues of the FSLN. In some, he has proclaimed himself the
"People's President" and more recently claims that to "serve
the people is to serve God." In town hall meetings held
weekly, he regularly accuses his political enemies of
corruption, savage capitalism, and with being members of the
oligarchy or remnants of the Somoza dictatorship. In form
and function, Ortega is successfully blurring the distinction
between party and state by tying FSLN symbols to every aspect
of government and managing funds from Venezuela off-budget.
Ortega continues to operate his presidency out of FSLN party
headquarters.


8. (SBU) With the power-sharing agreement that gave him
control of the National Assembly, Ortega's control now
extends into every branch of government, including the
executive, judiciary, the elections council (CSE),municipal
government, and the legislature. To consolidate control of
the executive branch after coming to office in January 2007,
Ortega fired over 7,500 civil servants in his first year in
office, depriving the country of needed expertise to manage
programs, and replacing them with personal loyalists. He
controls the judiciary through political appointments at all
levels and a network of magistrates, including in the Supreme
Court.


9. (SBU) In order to expand his reach into all levels of
society and government, Ortega has created the Citizen Power
Councils (CPCs) to supplant existing civil society
organizations and legally-mandated mechanisms for public
input to and oversight of government. Reminiscent of the
ruthless Committees for the Defense of Sandinismo (CDSs) in
the 1980s, the CPCs have been used to intimidate, threaten
and stir public demonstrations against the FSLN's opponents.
Letters of recommendation from the CPCs are frequently
required to obtain government employment or social services.
CPCs are increasingly involved in the distribution of
government housing, food and healthcare and such aid is often
directed towards party loyalists rather than those in most
need.


THE ECONOMY
--------------


10. (U) The Central American Free Trade Agreement (CAFTA-DR)
came into force between the United States and Nicaragua in
April 1, 2006. The agreement has kept the United States
Nicaragua's largest trading partner. U.S. exports to
Nicaragua were USD 890 million in 2007 and imports from
Nicaragua were USD 1.6 billion. About 25 wholly or partly
owned subsidiaries of U.S. companies operate in Nicaragua.
The largest of these are in energy, light manufacturing,
financial services, retail and aquaculture.


11. (SBU) Nicaragua is primarily an agricultural country, but
services (especially tourism, commercial, and financial),
light manufacturing (mostly apparel),construction and
seafood have grown in importance in the last few years.
Lacking a large internal market, Nicaragua depends on exports
for economic growth. In 2007, total exports were USD 2.3
billion, equivalent to 40 percent of Nicaragua's GDP.
Traditional exports such as coffee, meat, and sugar still
lead the list of Nicaragua's exports, but the fastest growth
has taken place in light manufacturing (apparel and
automobile wiring harnesses),food processing, seafood and
new agricultural products such as peanuts, sesame, melons,
tomatoes, and onions. Tourism has become the nation's third
largest foreign exchange earner, with some 60,000 American
citizens or residents traveling to Nicaragua yearly --
primarily on business, as tourists, and to visit relatives.
Many Nicaraguans depend upon remittances from family members
living in the United States and Costa Rica. In 2007,
remittances totaled about USD 800 million, or about 12
percent of GDP.


12. (U) Despite the growth in the export sector, Nicaragua
remains the second-poorest nation in the hemisphere.
Officially, unemployment is at 4.9 percent of the workforce,
but this figure does not include the informal sector, which
comprises an estimated 60 percent of the total workforce. In
2007, growth was 3.8 percent, bringing GDP to USD 5.72
billion. Growth in 2008 is expected to come in at around 2
percent. Problems on the horizon include slowing foreign
investor interest as the result of increasing political risk
and persistent trade and budget deficits. Foreign
assistance, including donations, concessional loans, and debt
relief constitute approximately 25 percent of the budget, and
have been needed to bridge these deficits.


13. (SBU) The government's actions during last November's
municipal elections have damaged Nicaragua's relationship
with foreign donors, including the European Union and the
United States. The European Union has frozen more that USD
60 million in direct budget support and other assistance.
The government is seeking to make up this shortfall by
seeking assistance from Russia, Iran, Libya and Venezuela but
with no visible success. According to official press
releases, in 2007-2008, Venezuelan development assistance to
Nicaragua was about USD 375 million, but this may not include
additional undeclared and off-budget assistance to the ruling
FSLN party. The FSLN appears to have used this part of
assistance to invest in party building, pay for party
projects and political propaganda, and to fund the campaigns
of pro-government candidates in the November 2008 municipal
elections.

COUNTER-NARCOTICS AND MERIDA
--------------


14. (SBU) Nicaragua is not a major drug producing country.
However, because of its geographical location, it continues
to serve as a significant transshipment point for South
American cocaine and heroin destined for the United States.
There is evidence that this narcotics trade is increasingly
tied to arms trafficking as well. This situation, combined
with Nicaragua's weak adherence to the rule of law and
democratic standards, judicial corruption, the politicization
of the prosecutor's office and the Supreme Court, and
insufficient funding for law enforcement institutions, makes
Nicaragua a convenient location for narcotraffickers and its
financial system an attractive target for money laundering.
Despite these weaknesses, the Nicaraguan government,
particularly the Nicaraguan National Police (NNP) and the
Nicaraguan Navy, have made a determined effort to combat
domestic drug abuse and the international narcotics trade.
In FY 2008, these combined forces seized approximately 19,505
kilograms of cocaine and over USD 4,742,000 in currency. In
2008, the NNP also recorded its first seizure of
pseudoephedrine in Nicaragua.


15. (SBU) U.S.-Nicaraguan cooperation on counter-narcotics
activities has been excellent and is one of the high-points
in our bilateral relationship. Under the Merida Initiative,
Nicaragua will receive USD 3,385,907 in FY08 funding, plus
access to regional programs, such as training positions at
the International Law Enforcement Academy in San Salvador.
Under the Merida Initiative, Nicaragua will receive
additional training and support for participation in the
Central American Fingerprint System, aid to special vetted
units, improved policing and police equipment, improved
prison management, improved border inspection capabilities,
firearms stockpile management and destruction, and special
programs directed at at-risk youth.



16. (SBU) There is, however, growing concern over the
potential politicization of the Nicaraguan police and armed
forces. In the November 2008 post-election violence, the NNP
failed to take measures to adequately protect opposition
protesters and there were reports of their direct involvement
in instances of abuses or electoral violations. Recent
replacements of senior leaders in the NNP indicate that
Ortega may be increasing his personal control over the
organization.

MILLENNIUM CHALLENGE SUSPENSION
--------------

17.(U) The Millennium Challenge Corporation (MCC) is funding
a USD 175 million poverty reduction grant with Nicaragua,
which provides direct assistance to some of the poorest
regions and promotes long-term development goals. The
five-year grant, signed July 14, 2005, seeks to support those
living in the departments of Leon and Chinandega by
significantly increasing incomes of rural farmers and
entrepreneurs. The compact is designed to reduce
transportation costs, improve access to markets, strengthen
property rights, increase investment, and raise incomes for
farms and rural businesses. In order to be eligible for MCC
assistance, a country must be committed to policies that
promote political and economic freedoms, investments in
people, control of corruption, and respect for civil
liberties, as measured by 17 independent policy indicators.


18. (U) MCC determined that political conditions leading up
to, during, and following Nicaragua's November 2008 municipal
elections were inconsistent with MCC's eligibility criteria.
As a result, MCC has suspended disbursements not already
contracted, principally for rural road construction, and for
implementation of its property regularization program pending
a review of political conditions in the March 2009 MCC Board
meeting. Because of the impact a suspension could have on
Nicaragua's rural poor, MCC will continue to provide
assistance to local farmers, farming cooperatives and other
rural businesses by continuing its rural business development
project.
CALLAHAN